A truck costing $25,000 with a residual value of $5,000 was purchsed by Rim Corporation. The truck's estimated life is 10 years. At the end of Year 2,what is the book value using declining-balance method? assume a depreciation rate of twice the straight-line method.
ujty
To find the book value of the truck at the end of Year 2 using the declining-balance method, you need to know the depreciation rate and the accumulated depreciation.
First, let's calculate the depreciation rate. The declining-balance method has a depreciation rate that is double the straight-line method. Therefore, the depreciation rate for declining-balance method = 2 * (1 / estimated life).
The estimated life of the truck is 10 years, so the depreciation rate for declining-balance method = 2 * (1 / 10) = 0.2.
Now, let's calculate the accumulated depreciation at the end of Year 2. Since the truck has a residual value of $5,000, the depreciable cost is the initial cost minus the residual value, which is $25,000 - $5,000 = $20,000.
The accumulated depreciation at the end of Year 2 is the depreciation rate multiplied by the depreciable cost, multiplied by the number of years (2 in this case). Therefore, accumulated depreciation = depreciation rate * depreciable cost * 2.
accumulated depreciation = 0.2 * $20,000 * 2 = $8,000.
Finally, to find the book value at the end of Year 2, subtract the accumulated depreciation from the initial cost. Book value = initial cost - accumulated depreciation.
book value = $25,000 - $8,000 = $17,000.
Therefore, the book value of the truck at the end of Year 2, using the declining-balance method, is $17,000.